Nasa has selected Boeing and SpaceX to transport astronauts to the International Space Station, bringing the agency one step close to launching Americans into space from US soil once again.

The US agency selected aereospace giant Boeing and PayPal founder Elon Musk’s SpaceX Corporation as the two winners of a hotly contested $6.8bn contract announced on Tuesday as part of its Commercial Crew Development programme.

It means Musk, who has invested a sizeable chunk of his estimated $9.5bn personal fortune in the development of space technology, will play a key role in returning manned spaceflight to US soil for the first time since the retirement of the space shuttle fleet in July 2011.

Since then, Nasa has relied on the Russian space agency to send its astronauts to the ISS at a cost of up to $71m per seat. That relationship has come under pressure in recent months amid growing political tensions between Washington and Moscow over Ukraine.

“Today we are one step closer to launching our astronauts from US soil on American spacecraft and ending the nation’s sole reliance on Russia by 2017,” said Charles Bolden, the Nasa administrator who announced the decision at Florida’s Kennedy Space Centre.

“This wasn’t an easy choice but it’s the best choice for Nasa and the nation. The partnerships with Boeing and SpaceX promise to give more people in America and around the world the opportunity to experience the wonder and exhilaration of spaceflight. As long as our providers meet our requirements, we want to use them.”

Boeing and SpaceX were involved in stiff competition to win the contract, beating out a challenge from the Sierra Nevada Corporation. SpaceX has already made successful flights to the ISS using an unmanned variant of its Dragon space capsule while Boeing’s CST-100 capsule is at an advanced stage of development.

There is no fixed timetable for either company to have its capsules ready for manned flight, although Nasa has expressed its hope for up to two test flights to have been completed by the end of 2017, when the existing contract with Roscosmos, the Russian space agency, is set to expire.

Nasa decided in 2009, two years prior to the retirement of the 30-year-old shuttle programme, that it would split its manned spaceflight operations in two. The agency is developing its own heavy-lift rockets, based on elements of the shuttle and Apollo programmes, called the Space Launch System for manned and unmanned deep-space missions to asteroids, the moon and eventually Mars. The first SLS test flight is scheduled for December.

Meanwhile, the development of lower Earth orbit operations was put out to tender to private space concerns, all competing for Nasa funds under the commercial crew initiative. Boeing has already received more than $570m to develop CST-100 in the three phases of the programme before today, while SpaceX has received $515m for Dragon.

Tuesday’s announcement gives Boeing an additional $4.2bn and SpaceX $2.6bn to spend on “certification” – making their vehicles safe for test flights.

The seven-seat CST-100 capsule relies heavily on technology from the Apollo era and unlike the shuttle will sit atop the rocket launching it into space. Dragon, also a seven-seater, follows a similar principle and both capsules are designed to splash down and be reused.

The loser of the day was the Sierra Nevada Corporation, which developed the Dream Chaser, a mini-space shuttle designed to land on a runway after spaceflight, developed with almost $300m of Nasa money. The spacecraft’s future is now uncertain.

Musk was not present at the press conference, which included Bob Cabana, a former space shuttle commander and now director of the Florida space centre from which the Boeing and Dragon capsules will launch.

Boeing is expected to host its own media briefing on Wednesday to announce it is working together with the Blue Origin company owned by Amazon founder Jeff Bezos to develop a new American-built rocket engine. The CST-100 is designed to ride into space aboard Atlas V rockets powered by the Russian-made RD-180 engines, as do US military and spy satellites sent into orbit. The Pentagon is worried that supply might dry up.

Earlier this month, Frank Kendall, the US government’s undersecretary of defence, said funding would be sought from Congress in the 2016 budget to explore alternatives.

“The situation has changed with events in Ukraine,” he said. “There is close to a consensus that we need to find a way to remove the dependency.”